People's Pilot, Volume 5, Number 12, Rensselaer, Jasper County, 12 September 1895 — A Primary Leeson in Finance. [ARTICLE]

A Primary Leeson in Finance.

A bright boy whose father is one of fortune’s favorites, fi*ids among the other presents in his stocking on Christmas morning a |lO national bank note on the Third National Bank of Chicago, 111. At the breakfast table the boy begins to ask questions about the bill: “What is it good for?” “That is money, my son. It will buy anything you want.” “But what makes it any better than any other piece of paper?” "Because the government says it is good. You can see the signatures of the register of the treasury and the treasurer of the United States on it.” “What did they sign it for?” “To know that the government stands good for ft and will see that the promise on its face is kept.” “What promise?” “The promise of the bank to pay ten dollars.” “Is that what it is?” “Yes. It is a promise to pay money, and not money itself, strictly speaking.” “Then the bank sends out these promises to pay money?” “That is it exactly.” “What makes people take them?” “Oh, everybody is glad enough to get them, because they can buy anything they want with them, and the government’s guarantee makes it sure that no oiie will lose anything on them.” “That must be a nice thing for the bankers. If I should get some promises to pay money nicely printed with green and black and red ink would people take them for money?” “No, indeed. Whatever put such an idea into your head? Banks couldn’t do it if it wasn’t for the law.” “Well, why does the law let some folks’ promises to pay go for money and not others?” “Because the folks who make these promises to pay are rich and have lots of money of their own.” “Ob, then, it is on the principle that ‘to him that hath shall be given.’ ” “No, not that, but they use their money to buy government bonds and then put the bonds into the hands of the secretary of the treasury and he gives them the notes.” “Oh, they trade off the bonds for notes and the government gets out of paying out any more interest on the bonds it takes in.”

"Not so fast, you young financier. The government only holds the bonds to make sure that the bills will be paid. It keeps on paying interest on them just the same as if the bankers held them.” “Well, I suppose that is fair. The banker gets interest on the government bonds but he has to pay interest to the people who take these notes of his for what they have to sell.” “Wrong again; you seem bound to get the cart before the horse. The people who get these notes from the banker pay him interest for the use of them.” What! Pay him interest because they take the promises to pay?” "That is exactly what they do. The promises to pay circulate as money and they pay interest for the use of the money.” “It seems to me that is getting the cart before the horse. When you make a note in a promise to pay money don’t you have to pay interest on it to get anyone to take it and let you have anything for it?” “Yes, but in the case of the banks it is different.” “You bet! I should say it was different. The banks draw interest on their notes and you pay interest on yours.” “You are getting it straight now.” “But isn’t a bank note a debt just the same as your note? Don’t it show that the bank owes so many dollars to the man who has it. “Come right down to the point of the matter, I guess that is about the size of it.” “Then as you pay interest on what you owe, the more you owe the poorer you are. but with a bank it is different. They get interest on what they owe and the more they owe the more money they make.” "I suppose that is true, too.” “Pa, when I grow up I ain’t going to sell groceries like you. I am going to be a banker.”